Criminalizing Monopolists: Sincere Revival, or DOJ Sabre-Rattling?

Background

At least as a technical matter, criminal enforcement of Section 2 has been available since the very inception of the Sherman Act in 1890.⁴ In practice, however, the Antitrust Division’s criminal enforcement activity has long been almost exclusively focused on prosecuting joint conduct under Section 1 of the Sherman Act, where the Antitrust Division is able to take advantage of the evidentiary shortcuts afforded by the per se rule of antitrust liability — shortcuts that are exceedingly valuable in cases where the elements of an antitrust violation must be proved beyond a reasonable doubt.⁵ In Section 2 cases, by contrast, the government is afforded no such shortcuts, and is instead required to make a series of detailed, fact-laden showings regarding the nature of the relevant market and the anticompetitive effects of the defendant’s alleged conduct — showings that can be challenging enough under a civil preponderance of the evidence standard, and may be prohibitively daunting in criminal cases.

It is not surprising, therefore, that, until very recently, the DOJ had not prosecuted anyone under Section 2 since 1977.⁶ And even in the pre-1977 “heyday” of Section 2 criminal enforcement, virtually all of the indictments referencing Section 2 challenged a course of conduct allegedly involving either an actual or attempted conspiracy in restraint of trade — i.e., conduct that independently violates Section 1.⁷ Thus, “pure” criminal enforcement of Section 2 has rarely, if ever, been a significant standalone tool in the Antitrust Division’s enforcement program. Against this historical backdrop, the Antitrust Division’s recent pronouncements regarding the future of Section 2 enforcement seem almost revolutionary.

Modern Section 2 Prosecutions: Zito and Martinez

But does the DOJ’s recent enforcement activity back up its public statements? In September 2022, the DOJ filed its first Section 2 criminal charges of the 21st Century, alleging that Nathan Nephi Zito, a paving and asphalt contractor in Montana, attempted to monopolize highway crack-sealing markets in Montana and Wyoming.⁸ The Antitrust Division accused Zito of approaching a competitor and proposing to divvy up markets across state lines, with Zito taking all contracts in Nebraska and South Dakota and the competitor taking all contracts in Montana and Wyoming. This is a classic “market allocation” agreement that, if actually consummated, would have violated Section 1. However, because the competitor rejected Zito’s offer, and because Section 1 (unlike Section 2) does not prohibit attempted conduct, the government was unable to charge Zito for violating Section 1. In effect, then, DOJ used a Section 2 charge as a way of reaching conduct that is, at bottom, an unsuccessful attempt to violate Section 1. Zito pleaded guilty to the Section 2 charge in October 2022.⁹

The following month, the Antitrust Division obtained Section 2 indictments in a second case, charging Carlos Favian Martinez and 11 others with a conspiracy to monopolize the market in the Los Indios, Texas area for the transport of used cars from the United States to Mexico for resale.¹⁰ The government alleges that Martinez and his co-conspirators agreed to fix prices and demanded that rival agencies pool their revenues in a fund, which Martinez would then redistribute amongst the conspirators.¹¹ That case remains ongoing.

Takeaways

So, what have practitioners learned from the Government’s first Section 2 cases in more than 40 years? Not much. Both cases have unusual facts that limit their broader applicability.

The most interesting takeaway from Zito is that the government is not averse to using Section 2 as a workaround when a defendant has only attempted a conspiracy to restrain trade. This is less consequential than it sounds. Yes, Section 1 does not address attempted conspiracy, while Section 2 criminalizes attempted monopolization. But to successfully prosecute an attempted monopolization case, the government must prove the other elements of the offence, including that the defendant has “a dangerous probability of achieving monopoly power.”¹² This requirement significantly narrows the cases to which Section 2 applies.

The “dangerous probability” element was relatively straightforward in Zito because the relevant markets — highway crack-sealing services in Montana and Wyoming — were highly concentrated.¹³ Indeed, Zito’s company and its competitor were often the only two contractors to bid on crack-sealing projects in Wyoming. The risk of monopoly power can be significant under such circumstances.¹⁴

But market dynamics comparable to those in Zito are rare. Most of the time, establishing monopoly power, or the dangerous probability of it, is a complicated endeavor that requires enlisting the help of economists and other experts. Cases where the government can prove this requirement beyond a reasonable doubt may be few and far between. Accordingly, Section 2’s utility as a stand-in for Section 1 for cases where the defendant merely attempts a conspiracy is limited.

The Section 2 indictments returned in Martinez rate as even less consequential because of the other charges in the case. Zito was, if nothing else, historically anomalous because the government only charged the defendant with violating Section 2. In the 38 Section 2 cases that the Antitrust Division prosecuted between 1939 and 2021, 34 featured other charges.¹⁵ More often than not, the other charges included Section 1 of the Sherman Act.

Martinez can be viewed as a continuation of this trend.¹⁶ Unlike Zito, Martinez and his coconspirators actually established a price fixing and market allocation conspiracy, which allowed the government to prosecute them under Section 1. Moreover, the defendants allegedly used violence, kidnapping, and extortion in furtherance of their scheme, all of which were independently prosecutable under the Hobbs Act.¹⁷ The government’s decision to charge combination and conspiracy to monopolize in addition to other crimes suggests that the Antitrust Division may start tacking Section 2 charges onto criminal actions when the facts so allow. But Martinez does not indicate that business practices previously thought to be beyond the bounds of prosecution could now land someone in prison.

Future Enforcement Efforts

If Zito and Martinez are any indication, criminal actions charging only a Section 2 violation will likely remain exceedingly rare. To be sure, civil enforcement of Section 2 — which the Antitrust Division has recently substantially increased — remains a potent weapon for the government to police anticompetitive conduct.¹⁸ But, on the criminal end, constitutional and practical concerns stand in the way of turbocharging prosecution under the statute.

Due process is perhaps chief among these obstacles. The Section 2 monopolization offense is notoriously vague.¹⁹ Fact finding for the first element — monopoly power — can be messy. Parties in civil cases typically enlist economists, analysts, and other experts to help the court define what the relevant market is and whether the defendant has monopoly power in that market. The right answer is rarely obvious.

And, even when the parties agree on the first element, there remains the often-more complex question of whether the challenged conduct is actually anticompetitive. Sometimes, business practices that seem anticompetitive at first glance end up being beneficial to consumers.²⁰ And even if the challenged conduct has anticompetitive effects, courts may curb antitrust liability if the conduct has procompetitive justifications that outweigh the anticompetitive effects.²¹ As with monopoly power, it often requires detailed factfinding and rigorous economic analysis to determine whether a firm’s actions are procompetitive or anticompetitive.

In short, the line between what does and does not violate Section 2 can be murky. For the government, that could spell trouble under the Due Process Clause. There is little doubt that Section 2’s open-endedness passes constitutional muster in the civil context, where the threat of prison is off the table. But criminal statutes must afford “fair warning” to potential defendants, lest they risk “arbitrary and discriminatory application.”²² Section 2 may run afoul of this requirement. Accordingly, efforts to expand the range of conduct prosecuted under the statute could render enforcement efforts vulnerable to constitutional challenge.

A related obstacle is the higher burden of proof that accompanies criminal enforcement. Even assuming arguendo that Section 2 prosecutions withstand constitutional scrutiny, there remains the practical concern of convincing a jury to convict a defendant accused of monopolization or attempted monopolization. This can be difficult enough in civil cases, where the standard is mere preponderance of the evidence. Even with this comparatively light burden, proving one’s case usually requires expending significant resources, retaining expert witnesses, and presenting economic analysis to a jury of no-experts. All this, just to get to “more likely than not.”

Other practical challenges associated with prosecuting Section 2 offenses are as simple as the decay of many of the tools of the trade during 45 years of non-use. For instance, the ABA Antitrust Section’s Model Jury Instructions in Criminal Antitrust Cases, a collaborative effort between government enforcers and the antitrust criminal defense bar last updated in 2009, contains more than a dozen model instructions for use with Section 1 prosecutions. But it contains no instructions at all with respect to issues specific to Section 2.²³

The class of cases where it can be proven, beyond a reasonable doubt, that the defendant not only possessed monopoly power (or, in attempt cases, had a dangerous probability of achieving it), but also willfully acquired or maintained it through anticompetitive means, is sure to be small. It may include cases like Zito, where markets are highly concentrated, barriers to entry high, and illicit paths to monopolization straightforward, or situations like that in Martinez, where a cartel violently coerces its rivals into joining a price-fixing and market allocation scheme. But little else is likely to make the cut.

Conclusion

At the ABA Antitrust Law Section’s upcoming 2023 Spring Meeting, several panels are set to feature Antitrust Division personnel — including one titled “Criminally Minded: Section 2 Prosecutions Advancing.”²⁴ During the conference, DOJ personnel may posit that Zito and Martinez signal a directional shift in Section 2 criminal enforcement. Strictly speaking, this is true: these were the first Section 2 prosecutions in decades. But practitioners should appreciate the extent to which the facts of these cases are unusual, as well as the obstacles to more robust criminal enforcement of Section 2. Accordingly, any suggestions that we have entered a new era of prosecuting monopolists — actual or attempted — should be taken with a grain of salt.

¹ See Michael Acton, US DOJ stands ready to bring criminal charges in Section 2 monopolization cases, Powers says, MLex (Mar. 2, 2022), https://mlexmarketinsight.com/news/insight/us-doj-stands-ready-to-bring-criminal-charges-in-section-2-monopolization-cases-powers-says.

² See, e.g., Enforcers’ Roundtable, Antitrust Magazine (June 27, 2022), https://www.americanbar.org/groups/antitrust_law/resources/magazine/2022-june/enforcers-roundtable/ (“We will pursue criminal violations when the facts and the law suggest it’s appropriate and consistent with the principles of federal criminal prosecution.”); U.S. Dept. of Just., Antitrust Division Manual § 7-2.200 (2022) (confirming that the DOJ may “bring, and has brought, criminal charges under Section 2”).

³ See Michael Acton (@MActon93), Twitter (Mar. 2, 2022, 1:40 PM), https://twitter.com/MActon93/status/1499107395884122112.

⁴ 15 U.S.C. § 2 (“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.”)

⁵ U.S. Dept. of Just., Recognizing Antitrust conspiracies and Working with the Antitrust Division 13, https://www.justice.gov/atr/page/file/1214191/download.

⁶ See Daniel Crane, Criminal Enforcement of Section 2 of the Sherman Act: An Empirical Assessment, 84 Antitrust L.J. 753, 755 (2022).

⁷ See Joseph James Matelis II & Daniel Richardson, Criminal Enforcement of Section 2 of the Sherman Act, Antitrust (Sept. 9, 2022), https://www.americanbar.org/groups/antitrust_law/resources/magazine/2022-summer/criminal-enforcement-section-2-sherman-act/.

⁸ See Press Release, U.S. Dept. of Just., Executive Pleads Guilty to Criminal Attempted Monopolization (Oct. 31, 2022), https://www.justice.gov/opa/pr/executive-pleads-guilty-criminal-attempted-monopolization.

⁹ See id.

¹⁰ See Press Release, U.S. Dept. of Just., Criminal Charges Unsealed Against 12 Individuals in Wide-Ranging Scheme to Monopolize Transmigrante Industry and Extort Competitors Near U.S.-Mexico Border (Dec. 6, 2022), https://www.justice.gov/opa/pr/criminal-charges-unsealed-against-12-individuals-wide-ranging-scheme-monopolize-transmigran-0.

¹¹ See generally Indictment, United States v. Martinez, et al., No. 22-00560 (S.D. Tex. filed on Nov. 9, 2022).

¹² Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993).

¹³ See Charge ¶ 6, United States v. Zito, No. 22-00113 (D. Mont. filed Sept. 19, 2022).

¹⁴ See Dodge Data & Analytics LLC v. iSqFt, Inc., 183 F. Supp. 3d 855, 869 (S.D. Ohio 2016) (“A ‘dangerous probability’ of achieving market power is more likely in a two-competitor market where each market participant has approximately an equal share, than in a market with numerous other players.”).

¹⁵ See Matelis & Richardson, supra note 7.

¹⁶ See Indictment, supra note 11, ¶¶ 1–18.

¹⁷ Unsurprisingly, the grand jury also returned indictments for Hobbs Act extortion and Hobbs Act extortion conspiracy.  See id. ¶¶ 27–33.

¹⁸ Jonathan Kanter, Remarks at the Keystone Conference on Antitrust, Regulation & the Political Economy (Mar. 2, 2023), https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-antitrust-division-delivers-remarks-keystone.

¹⁹ Daniel Francis, Making Sense of Monopolization, 84 Antitrust L.J. 779, 779 (2022) (“For monopolists of all kinds, the monopolization offense in Section 2 of the Sherman Act defines the contour between lawful competition and illegitimate foul play.  It applies to everything from pricing decisions to acquisitions of promising rivals.  It sets the ground rules for our most prominent and powerful digital platforms, and for monopolists throughout our economy.  And yet we are strikingly unsure of what it really means” (emphasis added)).

²⁰ See, e.g., Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 323–24 (2007) (explaining that a defendant’s predatory bidding scheme may have benefitted consumers); Brooke Grp. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993) (holding that failed predatory pricing schemes that drive down prices might not violate the Section 2 because consumers benefit from the lower prices).

²¹ See United States v. Microsoft Corp., 253 F.3d 34 (2001) (“If the monopolist asserts a procompetitive justification—a nonpretextual claim that its conduct is indeed a form of competition on the merits because it involves, for example, greater efficiency or enhanced consumer appeal—then the burden shifts back to the plaintiff to rebut that claim.” (citation omitted)).

²² Grayned v. City of Rockford, 408 U.S. 104, 108–09 (1972).

²³ See, generally, American Bar Association, Model Jury Instructions in Criminal Antitrust Cases (2009).

²⁴ Agenda, American Bar Association, 2023 Antitrust Spring Meeting 6 (Mar. 13, 2023), https://perma.cc/P69Z-B7AH.